Will the next financial crisis come as a stranger?

A decade after the onset of the 2008-09 global financial crisis – an event usually dated to the bankruptcy of Lehman Bros. – the world economy seems to be repairing itself.

To be sure, worries remain. The latest is that overborrowed “emerging-market” countries – Argentina, Brazil, China, India, Turkey and the like – may cause a new crisis. If they can’t earn (through trade) the dollars needed to repay loans, they would default and perhaps trigger contagion. Frightened investors would flee other emerging-market countries. President Donald Trump’s trade wars magnify the danger.

This prognosis is sobering; it may also be too pessimistic. In a new report, the McKinsey Global Institute – the research arm of the famed management consulting firm – has summarized the financial changes, for good and ill, that have occurred in these 10 years. There are pluses and minuses, but on balance the pluses seem to prevail.

Here’s a rundown of McKinsey’s score card.

(1) American and some European consumers have reduced their debts significantly, presumably by paying down existing debts and limiting new borrowing. American consumers cut their debt by the equivalent of 19 percentage points of gross domestic product, about $3.8 trillion in today’s dollars.Most of this debt presumably reflected cuts in home mortgages. Other countries with real estate booms also cut borrowing: Spain’s consumer debt fell 20 percentage points as a share of GDP; the United Kingdom’s dropped by 6 percent of GDP. Lower debts make it easier for households to continue spending, rather than diverting money to repaying loans.

(2) Cross-border movements of money – referred to as “capital flows” by economists – have declined dramatically, about 50 percent, since their peak in 2007. The dollar amounts are breathtaking, from $12 trillion to $6 trillion in 2017. “With less money flowing across borders,” says McKinsey, “the risk of a 2008-style crisis ricocheting around the world has been reduced.”Capital flows involve foreigners investing in other countries’ stocks, bonds, bank deposits or making “foreign direct investment” (buying existing companies or building factories and businesses). European banks especially have retrenched. “Two-thirds of the assets of German banks, for instance, were outside of Germany in 2007, but that is now down to one-third,” says McKinsey.

(3) Global “imbalances” – large trade surpluses or deficits – have diminished. The best-known are the chronic U.S. trade deficits and China’s sizable surpluses.But as McKinsey notes, the actual current account imbalances have shrunk, even though the rhetoric from Trump and others suggest just the opposite. Reports McKinsey: “China’s surplus reached 9.9 percent of GDP at its peak in 2007 but is now down to just 1.4 percent of GDP. The U.S. deficit hit 5.9 percent of GDP in its peak at 2006 but had declined to 2.4 percent by 2017.”

Though impressive, all these improvements need to be qualified. There are still many negatives. Although consumer debt as a share of GDP has fallen in many countries, it’s increased in others. In Australia, Canada, Switzerland and South Korea, “household debt is now substantially higher than it was prior to the crisis.” Housing bubbles are plausible.

Or take capital flows. Despite the sizable declines from their peak, global capital flows are still about 50 percent higher than in 2000. Similarly, China has increasingly relied heavily on debt – lent to state enterprises and other businesses – to stimulate economic growth. Its total debt (government, business and household) has grown from 145 percent of GDP in 2007 to 256 percent in 2017.

The ultimate horror of debt-heavy economies is that, without rapid economic growth, borrowers can’t service their debts – and if they can’t service their debts, economic growth will slow even more.

There are definitely grounds for worry, including the unknown. As McKinsey puts it: “One thing we know from history is that the next crisis will not look like the last one. If 2008 taught us anything, it’s the importance of being vigilant when times are still good.”